Australia’s central bank on Tuesday raised its key interest rate for the fifth time in 2026 to an 18-year high, citing higher fuel and commodity prices affected by the conflict in the Middle East.
The Reserve Bank of Australia (RBA) said on Tuesday that its Monetary Policy Board decided at a two-day meeting to lift the cash rate target by 0.25 percentage point to 4.85 percent.
The decision follows four earlier increases of 0.25 percentage point each in February, March, May and September, taking the key interest rate to its highest level since 2008.
The rate hike had been forecast by all four of Australia’s major banks after official figures released on Oct. 28 showed that annual inflation rose from 4.0 percent in August to 4.3 percent in September.
The annual trimmed mean, a measure of underlying inflation preferred by the central bank, rose from 3.5 percent to 3.6 percent. The RBA targets annual inflation of 2-3 percent.
The Monetary Policy Board said in its decision statement that inflation is now forecast to remain elevated through much of 2027 and is not expected to fall back to the top of the target range until late 2027.
“The Middle East conflict remains unresolved, and there are scenarios where inflation is higher and activity lower than forecast,” it said.
“Global oil supply disruptions are maintaining upward pressure on global and domestic energy prices and inflation. A period of prolonged uncertainty may also cause growth to be lower overseas and in Australia,” it added.
Responding to the decision, Treasurer Jim Chalmers said that the conflict in the Middle East is putting sustained upward pressure on inflation.
“It’s weighing on growth, and its end can’t come soon enough for the global economy or for Australians facing cost of living pressures,” Chalmers said.
He said that the rate rise was widely expected, but would be difficult news for Australians already paying a “hefty price” for circumstances out of their control.
The RBA said that Tuesday’s decision was made by a 6-3 majority of the Monetary Policy Board, with the three dissenting members voting to leave the cash rate target unchanged at 4.60 percent.
Michele Bullock, chair of the board and RBA Governor, told reporters that those who voted to keep the rate on hold put more weight on the downside risks to inflation, such as the ongoing housing downturn, rising unemployment and stagnant wage growth, than the upside risks.
She said that decision would be difficult for Australians with mortgages, but that the rise was needed to get inflation down.
“Every household is dealing with higher prices for groceries, electricity, insurance, and other essentials,” Bullock said. The Monetary Policy Board will hold its final meeting of 2026 to consider adjusting the cash rate target in early December. George Tharenou, chief economist at UBS Australia, said he expects the board to keep the rate on hold in December.
